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Old Mutual Agrees to Sell
U.K. Life-Assurance Unit

By

Catherine Taylor Dow Jones Newswires

Updated Jan. 5, 2000 12:01 a.m. ET

LONDON -- Old Mutual PLC of South Africa has agreed to sell its U.K. life-assurance subsidiary, Old Mutual Life Assurance Co., in a deal that will net it around 15 million pounds ($24.6 million or 23.9 million euros) above the unit's book value.

Old Mutual said the deal, once completed, will release back capital of around 75 million pounds, representing a surplus to book value of around 15 million pounds.

The deal "will substantially bring to a close our U.K. insurance activities, which weren't producing satisfactory returns," said Old Mutual Finance Director Eric Anstee. "By releasing OMLA's capital back to the group, shareholders will be able to benefit from the redeployment of assets," he said.

Old Mutual, which bought U.K. private client stockbrokers Albert E. Sharp and Capel Cure Myers Capital Management, has said it would like to expand in fund management and has been rumored to be interested in buying institutional fund manager Gartmore, which is being sold by National Westminster Bank PLC.

"The question is what will they do in the U.K.?" said Teather & Greenwood analyst Tim Young. Albert E. Sharp and Capel Cure Myers had been good buys, "but it doesn't gear them to what's going on in the U.K. pensions market. They can't get the scale needed with the resources available to them," he said. Even buying Gartmore would stretch the group, Mr. Young said.

"The bottom line is that this is a well-run company in a difficult market, having a bit of a difficult time developing itself into a more geographically diversified life company," Mr. Young said. But, he added, "If they carried on buying decent businesses with a reasonable ... return on their investment in the fund management arena and develop their private client business further, they should be able to create value from doing so."

OMLA is to be sold off to two separate companies. OMLA's annuity book will be transferred under a reinsurance treaty to Bermudan reinsurer XL Mid Ocean Reinsurance Ltd., a subsidiary of XL Capital Ltd.

The remaining nonlinked and linked life business will be sold to Century Life PLC and then transferred to Century Life.

Mr. Anstee said the group started negotiations on the disposal some time ago as part of its demutualization and flotation. Old Mutual was listed in London and Johannesburg in July last year.

OMLA has operated on a closed book basis since 1998.

Century, set up in 1983, makes its profits by buying life-assurance businesses which are closed to new business and running off the existing business at a profit.

OMLA was being disposed of for a "pretty lowly price," said Mr. Young, "but I'm quite surprised that they managed to find a buyer." The business, bought in the mid '80s, had been "a bit of an unmitigated disaster from start to finish," Mr. Young said. "It's suffered from all the nasty things, like big pensions misselling provisions and big strengthening of guaranteed annuity options reserves -- they needed to dump it."

Mr. Young said the group needed to beef up its U.K. financial-services operations. With its shares trading at a discount to its U.K. life-assurance peers, it lacked the ability to make the quantum leap into U.K. life assurance that it needed, however, he said.